VMware could buy its owner, Dell, in the biggest tech biggest deal

SAN FRANCISCO – A rarely used business ploy called a reverse merger could allow Dell computers to once again go public, by selling itself to a smaller company it already owns, VMware. The strategy would save Dell from the fuss of a formal listing and could also rank as the largest tech deal ever.

The possible sale, reported by CNBC, is one of the multiple rumors swirling around about Dell. The company was long a mainstay of the consumer PC market. But as traditional PC sales began to drop with the rise of tablets and smart phones, revenues plunged. It went private and then shifted into cloud computing and storage with its $67 billion deal for EMC.

The latest possible twist reflects the massive shift that's taken place in the past decade as consumers and businesses turn from relying on stand-alone desktop and laptop computers and hard-drive storage to smaller devices on which users access most content — from streaming movies to photos — via cloud computing, with data stored on distant server farms. According to Gartner, sales of PCs globally have been declining for six straight years. In 2017 they declined 2.8% overall, Gartner found.

Hit by the slide, Dell CEO and founder Michael Dell took the company private in 2013 in a deal with private equity firm Silver Lake. It's moved away from its former core focus on consumer PCs and shifted to a greater emphasis on selling backend software and services to companies and datacenters.

Enter VMware, a publicly traded software virtualization company. Dell today owns 80% of the Palo Alto, Calif.-based company, which it got as part of the deal when it bought EMC for $67 billion in 2015. At the time, and still today, it was the largest technology industry deal ever.

Virtualization allows a software program to “virtually” run different operating systems and other systems in the cloud, mimicking individual systems that in the past would have had to run on their own hardware. It's something like computer-assisted design for software.

File photo taken in 2011 shows the Dell logo on one of the tech giant's computers.(Photo: Matt Rourke, AP)

Now CNBC is reporting that Dell might be contemplating a reverse merger, allowing it to go public without having to go through the full financial scrutiny an actual public offering would require.

In this case, Dell owns 80% of its subsidiary, VMware. The theory is that Dell would sell itself to VMware.

VMware (VMW) shares dropped 16% on Monday on the report, which was based on anonymous sources.

What Dell might be worth isn’t know because it isn’t publicly traded. However it paid $67 billion for EMC three years ago and so is presumably worth at least that much.